Sarawak elections: Back to the drawing board?

Potential pullback. Although Barisan Nasional (BN) secured more than two-thirds of the state assembly seats, the loss of 15 seats was higher than what political analysts had expected. In the May 2006 state elections where BN lost an additional 9.5% of seats, the KLCI was down 1.4% in the one week after the state elections. Price correction of Sarawak stocks was steeper, with politically linked CMS down 7.7%in one week.

The trend may be similar over the next few days post the 9.9% additional seat loss by BN last Saturday. We view any upcoming weakness as an opportunity to accumulate the Sarawak construction stocks – our pick is Hock Seng Lee (TP: RM2.30).


Results disappointed?

The BN led state government won 55 (77.5%) out of the total 71 seats in the 10th state elections held last Saturday. Chief Minister (CM) Taib’s party, PBB, retained 35 seats (unchanged) but the other two BN component parties had lost out with a total 15 seats falling to the opposition (versus 8 seats lost in the 2006 state elections) with DAP securing 12 seats (+6), and PKR 3 seats (+2).

While the BN led government was expected to continue into the new term, the loss of additional seats to the opposition was higher than the 2-3 additional seat loss which political analysts had predicted.

Market reaction the last time. The BN-led state government lost an additional 9.5% of total seats in the 2006 state elections. The broader KLCI was down 14 pts (-1.4%) in the one week after the state elections.

At the end of the first month, the KLCI had lost 54 pts (-5.8%), due also to external weakness with the DJIA consolidating 1.8% during the same period.

Sarawak stocks saw steeper price decline. Within one week of the May 2006 state elections, politically linked CMS had retraced 7.7%.Others like Encorp and Naim Holdings were down 7.9% and 2.4% respectively.

Sarawak-based construction stock HSL retraced 5.1%.

The bright side.

Commenting on last Saturday’s state elections, PM Najib said that the BN led government will “fulfill all its pledges to the people”. Besides leadership changes, we believe the promises include development and basic water, electricity and infrastructure needs.

On that premise, we continue to expect construction activities to step up,supported by Sarawak’s Corridor of Renewal Energy (SCORE)development programme. Tenders for 27 road packages mostly leading to upcoming new hydro-electric dam projects worth at least RM2b closed last year. We expect construction awards to pick up soon.


13th GE: Uncertainty in timing?

On whether BN’s two-thirds victory can be a gauge for the next general elections (GE), PM Najib was quoted as saying that “it is a yes and a no”. “Yes, because we can
maintain our momentum to win after the previous victories in various other by-elections held and it has inspired us,” but “No, because it is just a state election and does not reflect the situation of the country as a whole”.

Our interpretation of the PM’s remark is that the probability of a snap General Election this year has lowered somewhat compared with prior to the Sarawak State Election when the by-elections were swinging in BN’s favour.

STRATEGY: Penang- No More “Kiam Siap”



With Penang appearing to benefit from greater investments both local and foreign, we made a visit to my home state to see if the famed “kiam siap” stereotype of the typical island Penangite had changed. Visits to IJM Land, E&O and Hunza would seem to indicate a greater propensity for spending among Penangites thus benefiting these companies who are in the midst of high end property development projects and a retail mall development. While E&O and IJM Land are currently Not Rated, we have a Buy call on Hunza and note that our top property sector pick, SP Setia, is also exposed to the burgeoning Penang property market.



CONSTRUCTION (OVERWEIGHT) Sector News Flash: Iskandar Wants an MRT too


NEWS HIGHLIGHTS

Felda to list sugar business by July
CMP2 to further unlock value
RM30bn sukuk planned for MRT
Press Metal, partners sign deal with Sarawak Energy
Favelle units win jobs worth RM90mn
BToto to sell half its NFO?
Maybank says seeking BII divestment exetension

ECONOMIC HIGHLIGHTS

Indonesia: Keeps interest rate unchanged as inflation slows
Canada: Keeps key rate 1%, citing faster growth, dollar
UK: Inflation unexpectedly slows as stores cut food prices
UK: Retail sales plunged most on record in march, brc says
German: Inflation unexpectedly accelerated in march on oil
Spain: Underlying inflation slows for first time in a year
US: Trade deficit narrows less than forecast

Weekly Informatio​n Equity Flyer - 18.04.2011

With the market quiet due to the Sarawak state elections on 16 April, 1011, it is time to focus on stocks which have good rising revenue streams as well as better dividends yields. Therefore, in this edition of Weekly Equity Information Flyer, we highlight: -

1. Amway (Malaysia) Holdings Berhad (AMWAY, stock code: 6351)

Beginning with just five employees in a small office and warehouse facility in Jalan Ipoh in 1976, Amway Malaysia was one of the pioneers in the direct selling industry at that time.

Today, Amway Malaysia is the leading direct selling company in Malaysia with a core distributor force of 195,000 from all corners of the nation, making Amway a household name in Malaysia.

Amway has a very excellent upward revenue trend from 2002 to 2011, with a superb dividend yield of 7.33% with PE of 18.9x.


2. QSR Brands Berhad (QSR, stock code: 9415)

QSR dominates Malaysia's rapid expanding retail food industry. Headquartered in KL, the group operates: -

- over 270 Pizza Hut restaurants in Malaysia and Singapore
- over 620 KFC restaurants in Malaysia, Singapore, Brunei, Cambodia and India
- over 40 RasaMas restaurants in Malaysia and Brunei

The group also extensively involved in poultry production and processing, as well as a host of ancillary businesses such as vegetable farming, baking and sauce production. This makes the group Malaysia's first and only fully-integrated food operator.

QSR has firm upward trend from 2008 to 2011, with a good dividend yield of 4.11% with PE of 14.0x.